Leaving Money on the Table?
If you didn’t comparison shop for your mortgage loan and don’t fully understand all its components, you’re not alone, according to Fannie Mae’s November 2012 National Housing Survey. “Although a home purchase is the largest financial obligation most people will ever make, many borrowers do not fully understand their mortgage products and costs,” notes Fannie Mae’s Chief Economist Doug Duncan.
Additionally, Duncan says, when homeowners don’t obtain multiple mortgage offers or compare rates, they essentially leave money on the table, particularly given today’s unprecedentedly low interest rates, and may pay higher costs down the road.
Research done for the Department of Housing and Urban Development suggests that when borrowers obtain multiple mortgage quotes, they can save $1,000 or more in closing costs. That’s money worth fighting for!
Be Your Own Advocate
The volume of documents borrowers see from the lender can be daunting, and the terminology can overwhelm. “Borrowers faced with a stack of documents don’t ask the right questions. When, in reality, borrowers should be driving the conversation,” notes Ted Jadlos, Chairman of iQual Corporation, a consumer credit advisory company in Rancho Cucamonga, California.
Jadlos advises borrowers to shop for mortgages the way they would shop for other major purchases like a car or boat. In other words, they should research product options and be familiar with their credit report and score which are used by loan officers to determine their eligibility for specific mortgages.
Know Your Score
Unfortunately, most homeowners won’t ever see their credit report until it’s been pulled by the loan officer and they are reviewing the terms of the loan he’s offering, says Jeff Mandel, iQual’s Chief Operating Officer. If that’s the case, an unexpected flag in the report may have already impacted the favorability of the loan offer.
Mandel suggests borrowers request and review their credit report carefully, and correct any inaccuracies, before applying for a home loan.
Every consumer in the U.S. can order a free report annually. To ensure you are visiting the legitimate site use this link https://www.annualcreditreport.com, or type https://www.annualcreditreport.com into the address bar on your browser, or call 877-322-8228.
And Do Your Homework
Once you’ve received your report (and corrected any errors), spend time learning about home mortgages. Many websites (including this one) offer free information about mortgage loans and loan calculators to help you decide how much home you can afford and how the terms of a loan (like type and length) and your down payment can affect your monthly mortgage payment.
Banks and credit unions also can be excellent resources for mortgage information, and many states have free mortgage assistance programs, advises Laura Creamer, a financial education specialist for CredAbility in Atlanta.
Creamer teaches an 8-hour in-person homeownership course to help people decide if they are ready to buy a home and how much they can afford. The course-completion certificate helps many borrowers qualify for local down payment assistance programs and get discounts on points with some lenders. “Credit education gives homeowners confidence, so they are ready to work with lenders and find the best deal possible,” says Creamer.
HUD-certified housing agencies offering online and classroom homeownership courses will be listed on HUD’s website. Many have free resources on their websites to educate borrowers and help them put together a “home buying team”—professionals who can assist throughout the homebuying process. See CredAbility sample.
And, finally, borrowers should review all offer components, including the rate, lender points and fees, and pre-payment fees, advises Sarah Shahdad, an analyst in Fannie Mae’s D.C. headquarters who works on the monthly housing surveys. “Homeowners need to understand the complete offer to evaluate it against other offers and determine whether they can actually afford the mortgage in the long run,” she says.
It seems that when it comes to home mortgages, the 1960s hit song from the Miracles had it right: you’d better shop around.